The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students, on a commission basis, to sell sweatshirts bearing the name andmascot of the local high school.These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost Hooper $22.00 each with a minimumorder of 400 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50.Since Hooper's plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be$44.00 each. Hooper would pay the students a commission of $5.00 for each shirt soldRequired:1. To make the project worthwhile, Hooper would require a $14,450 profit for the first three months of the venture. What level of unit sales and dollar sales would be required to reach this target net operating income? (Do notround intermediate calculations.)Sales level in unitssweatshirtsSales level in dollars2. Assume that the venture is undertaken and an order is placed for 400 sweatshirts. What would be Hooper's break-even point in unit sales and in dollar sales? (Round your intermediate calculations and final answers tothe nearest whole number.)Break even point in unitsSweatshirtsBreak even point in sales dollars

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Asked Jul 10, 2019
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The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students, on a commission basis, to sell sweatshirts bearing the name and
mascot of the local high school.
These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost Hooper $22.00 each with a minimum
order of 400 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50.
Since Hooper's plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be
$44.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold
Required:
1. To make the project worthwhile, Hooper would require a $14,450 profit for the first three months of the venture. What level of unit sales and dollar sales would be required to reach this target net operating income? (Do not
round intermediate calculations.)
Sales level in units
sweatshirts
Sales level in dollars
2. Assume that the venture is undertaken and an order is placed for 400 sweatshirts. What would be Hooper's break-even point in unit sales and in dollar sales? (Round your intermediate calculations and final answers to
the nearest whole number.)
Break even point in units
Sweatshirts
Break even point in sales dollars
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The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local high school. These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost Hooper $22.00 each with a minimum order of 400 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50. Since Hooper's plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $44.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold Required: 1. To make the project worthwhile, Hooper would require a $14,450 profit for the first three months of the venture. What level of unit sales and dollar sales would be required to reach this target net operating income? (Do not round intermediate calculations.) Sales level in units sweatshirts Sales level in dollars 2. Assume that the venture is undertaken and an order is placed for 400 sweatshirts. What would be Hooper's break-even point in unit sales and in dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.) Break even point in units Sweatshirts Break even point in sales dollars

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Expert Answer

Step 1

Break-even sales:

 

Break-even sales is that level of sales at which the firm is just covering its expenses in other words, there is no profit or no loss at this level of sales. It can be calculated as follows:

 

Fixed costs
Break-even salesContribution margin per unit
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Fixed costs Break-even salesContribution margin per unit

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Step 2

1)

 

Thus, the sales level to earn target profits is 850 shirts.

 

Thus, the sales level (in dollar) to earn target profits is $37,400.

Calculation of contribution per unit:
Contribution per unit Selling price-Cost price-Commission
$44- $22-S5
$17
Caleulation of sales level (in units) to earn target profits:
Fixed costs+ Target profit
Contribution margin per unit
Required sales in units
0+S14,450
$17
850 units
Calculation of sales level (in dollar) to earn target profits:
Required sales in dollar Required sales x Selling price
850 unitsx$44
=$37,400
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Calculation of contribution per unit: Contribution per unit Selling price-Cost price-Commission $44- $22-S5 $17 Caleulation of sales level (in units) to earn target profits: Fixed costs+ Target profit Contribution margin per unit Required sales in units 0+S14,450 $17 850 units Calculation of sales level (in dollar) to earn target profits: Required sales in dollar Required sales x Selling price 850 unitsx$44 =$37,400

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Step 3

The breakeven point is 226 in sales.

 

The break-even sales ...

Working note
Calculation of break-even sales in units:
Calculation of fixed cost:
Fixed cost
Break-even sales.
Fixed cost Units sold x Cost price
=400x $22
Contribution margin per unit
$8.800
39
S8,800
226 units
Calculation of contribution per unit
Calculation of break-even sales in dollar:
Contribution per unit Selling price - Variable cost
Break even sales in dollar Break even salesx Sales price per unit
$44-$5
226x $44
$39
$9,944
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Working note Calculation of break-even sales in units: Calculation of fixed cost: Fixed cost Break-even sales. Fixed cost Units sold x Cost price =400x $22 Contribution margin per unit $8.800 39 S8,800 226 units Calculation of contribution per unit Calculation of break-even sales in dollar: Contribution per unit Selling price - Variable cost Break even sales in dollar Break even salesx Sales price per unit $44-$5 226x $44 $39 $9,944

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